Energy Report: Get Out Of The Way

If the International Energy Agency (IEA) sounds bullish then oil bears had better get out of the way. Oil prices might be breaking out of their month-long wicked trading range as the normally pessimistic IEA is sounding pretty darn bullish. Not only are they raising their demand forecast, but they are also calling on OPEC to increase output by almost 5 million barrels of oil per day!

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The IEA says that oil demand in 2021 is forecast to reach 96.7 mb/d, an increase of 5.7 mb/d from 2020. Despite weaker-than-expected data for 1Q21, annual growth has been revised up by 230 kb/d on average to take account of better economic forecasts and robust prompt indicators. The IEA says that the world oil supply rose 1.7 mb/d in March to 92.9 mb/d after the shut-in U.S. output recovered from a cold snap. Further gains from the US, Brazil, and biofuels are set to lift global supply in April, while producers taking part in OPEC+ cuts continue to limit flows. Non-OPEC+ will see gains of 610 kb/d in 2021 after a 1.3 mb/d drop in 2020. U.S. supply is set to fall 100 kb/d after a 600 kb/d loss in 2020.

Global refineries caught up with year-earlier levels in March for the first time since 2019, rising by 1 mb/d m-o-m on a strong recovery in the U.S. following February’s freeze. At 75.9 mb/d, global refinery runs were nevertheless 4.4 mb/d below March 2019. Crude throughput is forecast to rise by 6.8 mb/d from April to August, resulting in average annual growth of 4.5 mb/d.

OECD industry stocks fell for the seventh consecutive month in February, by 55.8 mb or 2 mb/d, led by a sharp draw in product inventories (-66.8 mb). At end-February, total oil stocks stood at 2 977 mb, reducing the overhang versus the 2016-2020 average to 28.3 mb. March data for the US, Europe, and Japan show that industry stocks were built by a combined 15.3 mb in total.

Crude prices rose ~$3.35/bbl m-o-m in March and were up a steep $32/bbl on year-ago levels. Stronger economic prospects have steadily boosted prices from November. They hit a 22-month high in mid-March, before easing on plentiful supplies. Brent currently trades around $63/bbl and WTI $60/bbl. Ample supply has also weighed on physical crude price differentials for many grades.

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